The use of anti-dumping and countervailing duties has increased around the globe, born from protectionist tendencies most countries have toward their home industries.

In the growing nation-family of free trade, everybody brings something
unique to the trade table for all others to share. Taiwan brings the (polyvinyl)
alcohol and Brazil the orange juice to get the party started. Chile and
Norway volunteer fresh salmon, while Italy brings (what else?) the pasta
and China adds garlic and mushrooms. France and Germany bring sugar for
dessert. Pretty much everyone bakes a batch of steel to pass. Turkey has
the aspirin for the collective free-trade hangover.

The United States, for its part, will be bringing a case of anti-dumpinga
free-trade antacid served to other countries in hopes of getting relief
from the bounty of goods at this "family" gathering. In fact,
the United States has an anti-dumping duty order on every item at our
free-trade gathering above.

In free-trade shorthand, dumping occurs when an imported good is
sold at less than the good's domestic fair market value. Anti-dumping
is the legal framework countries use to place duties, or import
surcharges, on products determined to be dumped. Anti-dumping's
twin brother-countervailing dutiesis slapped on imports whose
prices are deemed artificially low because of government subsidies.

Ironically, the voice of free tradethe United Statesis
anti-dumping's largest historical user. But as free trade has expanded,
other countries have discovered the utility of anti-dumping laws
in protecting home industries from global competition and have copied
the U.S.'s recipe.

Open for business

The use of both anti-dumping and countervailing duties has skyrocketed
in the last few decades, coincidental with increasing trade liberalization
around the globe, and born from protectionist tendencies that most countries
have toward their home industries.

Virtually any company or association of companies can petition
for
anti-dumping protection. The main barrier is legal costs, which can run
from six to low-seven figures, depending on an assortment of complicating
factors. For many industries, this is a relatively low threshold, given
the potential benefits of anti-dumping protection, and industries like
steelby far the largest user of anti-dumping lawschemicals,
sugar and others have become regular users.

The process of anti-dumping and countervailing duty works as such:
A company that believes it is being injured by import dumping files
a petition with the federal government requesting that protectionin
the form of dutiesbe applied to the imported good in question.
Once the petition is filed, an investigation is launched by two
federal offices. The Department of Commerce determines whether goods
were sold below cost or at less-than-normal market value, and the
International Trade Commission (ITC) calculates whether the imported
goods wreaked "material injury" on domestic industries. Both have
to find in the affirmative for duties to be imposed.

There are three methodshome market, third-country market
and constructed marketfor calculating whether an imported
good has been dumped. Without falling into the black hole of minutiae
that accompanies the application and calculation of dumping under
each method, numerous sources indicate that each method tilts in
favor of the industry petitioner.

"The way they define anti-dumping so broadly, it's almost
meaningless," said Thomas Prusa, a professor of economics at
Rutgers University. A 1999 paper by Prusa, published by the National
Bureau of Economic Research (NBER), states that the ITC rules affirmatively
about half the time, but since 1980 Commerce has rejected less than
5 percent of anti-dumping cases because the domestic industry could
not show unfair pricing.

Said Bruce Blonigen, an economics professor and anti-dumping researcher
at the University of Oregon, "The plaintiffs, the tables are
tipped to them."

There oughta be a law

The argument for industry protection in the form of anti-dumping is pretty
straightforward: The threat of losing U.S. jobs and companies is a matter
of national economic security. But one might be struck by other conclusions
when scrolling down the list of 38 imported items from China alone that
currently pay U.S. anti-dumping duties: cased pencils, cotton shop towels,
paper clips, paintbrushes, sparklerssparklers!and freshwater
crawfish tailmeat.

The United States is hardly alone in the curious-case category.
India has filed for protection from acrylic yarn imported from Nepal
and fluorescent lights from China. Australia is fighting "certain
A4 ring binders" from Malaysia, and Mexico is doing the same
against bicycle tire imports from India. The European Union recently
sought shelter from gas-fueled, nonrefillable pocket flint lighters
from Thailand.

"If you go down these [case] lists, it's hard not to start
giggling," Blonigen said. "It's an open door for anyone
to use."

As of April 2001, the United States had anti-dumping or countervailing
duties on some 265 items from 40 different countries, making it easily
the world's largest user, according to the International Trade Administration
(ITA, part of the Department of Commerce). The next closest userthe
European Union and its 15 countrieshad 154 duties in place last
year, according to a July 2001 report by Brink Lindsey and Dan Ikenson
of the Cato Institute, a free-market think tank.

U.S. anti-dumping laws date back to 1916, crafted in the same
mind-set as antitrust laws of that era. "They were [both] written
to prevent predatory pricing," Prusa said. That's still the
rhetoric today, but "that's not really what it is anymore.
... That is purely historical legacy."

Prusa, Blonigen and other researchers have shown that the original
threshold has been badly watered down. "There's no need to
show it had predatory intent," Blonigen said. "You don't
have to be even close now."

Broad applicability has made anti-dumping popular among industries
facing stiff competition from foreign trade. "The law is used
as a substitute for other kinds of protection. [Industries] see
it as their last out," Prusa said, and used "to take a
breather" from stiff foreign competition. "The problem
with that is that is not the intent of the law. They are simply
trying to slow down trade."

Much of the growth in anti-dumping can be traced to free-trade
agreements themselves. Although the United States and some other
countries had anti-dumping laws on the books, the modern history
of anti-dumping came with the General Agreement on Tariffs and Trade
in 1947, which started setting the ground rules for global trade.
In the spirit of compromise, free-trade negotiations often introduced
amendments that made anti-dumping requirements ambiguous and open
to interpretation, or arcanely technical and difficult to interpret.

Major trade laws have been amended "at least a half-dozen
times in the last 25 years," according to a recent NBER paper
by Blonigen and Prusa, creating a legal definition of dumping that
"is almost completely divorced from any economic notion of
dumping." For instance, the Tokyo Round negotiations in 1979
dismissed the requirement that dumped imports be the principal cause
of material injury to the domestic industry for duties to be imposed.

In other cases, negotiations didn't try to limit anti-dumping laws
as much as standardize them. This was particularly the case with
the World Trade Organization's anti-dumping Agreement, which was
finalized at the Uruguay Round in 1994. It placed a loose harness
on anti-dumping, but patterned the agreement's standards and procedures
on the protection-friendly U.S. model.

"I think you could say that in the 1990s, [the United States']
greatest export was its anti-dumping laws," said Eric Emerson,
a partner in the law firm of Steptoe & Johnson in Washington, D.C.,
which has handled more than 100 anti-dumping and countervailing
duty cases. "It's exploded."

Growing big and strong

Cases of anti-dumping and countervailing duties are showing three general
trends: There are more petitions seeking duties, coming from more countries,
with a higher rate of duties ultimately being imposed.

Investigations of anti-dumping and countervailing duties have seen
remarkable growth in the last few decades. From 1916 to 1970, for
example, there were almost 800 such cases in the United States,
or about 15 a year, according to ITA figures. But they crept to
an average of almost 23 per year in the 1970s, then skyrocketed
to 60 cases a year in the 1980s. The pace then slowed to 50 initiations
a year in the 1990s, due to a sharp drop in annual countervailing
duty cases.

Worldwide filings have seen a similar pattern, but with a twist.
Some 1,600 cases were filed worldwide in the 1980s, twice the level
of the 1970s, according to research by Blonigen and Prusa. The rate
of case growth worldwide has slowed somewhat and fluctuated during
the 1990s, but nonetheless reached 2,500, according to the World
Trade Organization (WTO). In 2000, there were 272 investigations.

For decades, much of the growth came from a small group of users.
In the 1980s, about 95 percent of anti-dumping cases came from the
United States, Australia, Canada, the European Union and New Zealand.
[Most research in this area treats the EU as one governmental entity
even before its official formation.] But with a standardized framework
of dumping laws to work with, Emerson said, "domestic industries
[from developing countries] are saying, 'Why can't we seek the same
protection'" that U.S. companies have been getting for decades.

Indeed, they can and have done just that. Industries from 37 different
countries initiated anti-dumping complaints from 1990 to 2000, according
to WTO figures, better than triple the previous decade. The number
of annual cases by "new" or nontraditional users has grown
on the order of 50-fold since the early 1980s; WTO data show they
filed 55 percent of all anti-dumping petitions in 1999 and 2000.

"We shouldn't be surprised, but it's an ominous path. They
[other countries] have found religion. There are great loopholes
to exploit on behalf of domestic industries, according to Prusa.
"But I think we should be worried because our exporters are
going to be exposed" to more anti-dumping petitions.

With 89 cases brought by industries in at least 17 different countries
from 1995 to 2000, the United States was the third-most targeted
country of anti-dumping investigations, WTO figures show. It trailed
only China and South Korea, and was ahead of Russia, Japan, Mexico
and Brazilcountries commonly perceived to practice unfair
trade. The Cato study reported that about 60 percent of cases saw
duties imposed on U.S. exports during this time.

In fact, duties are being imposed more often around the world.
For the first 50 years after the anti-dumping laws were passed,
only about one of every 10 anti-dumping cases75 in allbrought
by U.S. industry resulted in import duties, according to research
by J. Michael Finger, an economist with the World Bank. WTO data
show that total measures in force grew to almost five of every 10
cases from 1990 to 2000. Data from Commerce and the ITC show a slightly
lower duty rate in U.S. anti-dumping cases.

Once anti-dumping duties are in force, they tend to hang around.
Thirteen Japanese products have been under duty orders since before
1990, and four date to the 1970s. To address this problem, the Uruguay
Round mandated that countries conduct a "sunset review" on all duties
that are five years old, which also meant countries had to review
a big pile of older duties. Although sunset reviews have greatly
accelerated the total number of duty revocations, they have left
the majority of U.S. duties in place. Among 277 sunset reviews from
August 1999 to July 2001, U.S. duties were continued in almost two
of three cases, according to government data.

In 1986, for example, the United States imposed anti-dumping duties
of between 1 percent and 31 percent on a total of 10 companies from
South Korea and Taiwan for unfair trade in top-of-the-stove (TOS)
stainless steel cookwarewhich Commerce defined as "skillets,
frying pans, omelette pans, saucepans, double boilers, stock pots,
dutch ovens, casseroles, steamers and other stainless vessels ...
except for tea kettles and fish poachers." The petition was
filed by the Fair Trade Committee of the Cookware Manufacturers
Association.

The year after duties were put in force, TOS cookware exports from
these two countries dropped between 50 percent and 75 percent. South
Korean exports dropped from 35 million units in 1986 to less than
4 million by 1998, a decline of almost 90 percent, according to
a Commerce sunset review in 1999. It ruled that removal of the duties
would likely lead to "continuation or recurrence of dumping" at
levels seen 15 years earlier, and they were left in place.

Do as I say

One of the more peculiar aspects of anti-dumping is the ability of countries
to turn a blind eye to apparent inconsistencies, even double standards.

For example, Mexico has an import duty on corn syrup from the United
States to slow its replacement of domestic sugar as a sweetener
for soft drinks and other Mexican-made products. Panels from both
the WTO and North American Free Trade Agreement found the duty to
be illegal, which Mexico has either appealed or refused to recognize.
To the north, U.S. corn farmers complain about the duty, despite
the fact that they received billions last year (and the year before,
and the year before that) in federal emergency aid because of low
prices.

Meanwhile, the Mexican government recently bought out 27 sugar
mills facing bankruptcy, or almost half the domestic industry. Seeing
low-priced sugar coming up from its southern neighbor, U.S. sugar
growers are pushing for duties or import quotas on Mexican sugar,
despite the fact that U.S. growers enjoy generous and longest-standing
subsidies. Waving the flag of NAFTA, Mexico has been fighting import
quotas on its sugar, despite the fact that it signed a side agreement
to NAFTA that limits sugar exports to the United States (which the
Mexican Senate reportedly never signed and has refused to recognize).

In another game of anti-dumping tag, the Cato report found 59 products
that were domestically protected by import duties in 29 host countries,
but simultaneously faced anti-dumping duties as exports to other
countries. The United States had six such products, including 3.5
inch microdisks that were protected from dumped Japanese imports,
but were dumping targets themselves in the European Union.

While serious issuesand, indeed, the livelihoods of manyare
at stake, some cases border on farcical. Southern lawmakers are
pushing for duties on catfish from Vietnam, which compete with catfish
grown in several southern states. One U.S. congressman said a dumping
duty was justified on the grounds that Vietnamese catfish were unsafe
for consumption, thanks to the pollution of the Mekong River and
other waterways by Agent Orange, a defoliant used by the U.S. military
during the war there more than three decades ago.

Last year, the North Dakota Wheat Commission filed a petition seeking
an investigation against the Canadian Wheat Board for alleged dumping
of durum. Citing eight similar petitions and investigations by various
entities in the past, a Canadian press release was issued the same
day statingalmost Monte Python-likethat the "Government
of Canada opposes further harassment" of its Wheat Board.

Then there's the Byrd Amendment. "Added in the middle of the
night without a lot of debate," according to Emerson, the lawyer,
it allows the United States to use the revenue from import duties
to reimburse petitioning companies for certain costs. Countries
have likened it to double jeopardy, where companies are forced to
pay duties directly to their foreign competitors.

"It's not the lottery," Emerson said. "You can't
just go over to Commerce with a bucket. ... [But] I think it is
contrary to the spirit of the [anti-dumping] law." As of mid-September,
10 countries plus the European Union have asked the WTO to review
the legality of the Byrd Amendment, making it the largest dispute
in WTO history in terms of total countries involved.

Given the broad and deep support that governments worldwide provide
their businesses, one might also expect countervailing duty cases
to be going off the charts. But if U.S. figures are any indication,
it appears to be the exact opposite. Countervailing duties are imposed
whenever government (at the national, regional or local level) confers
financial benefit on a company or industry. According to WTO agreements
and Title VII of the (U.S.) Tariff Act of 1930, this includes everything
from direct funding to loan guarantees to special tax consideration.

Open the floodgates, right? Nope. The United States, for one, has
seen its average annual caseload drop from 23 in the 1980s to just
six per year since 1993. Again, trade agreements appear to be an
underlying reason. Governments are loathe to give up long-standing
subsidy programs to domestic industries. Rather than wipe the trade
slate clean and face an onslaught of countervailing duty cases,
trade pacts often grandfather existing government subsidy arrangements.
The WTO, for example, has a green-amber-red code (translate: allowable,
please slow and stop) to deal with the many agricultural subsidies
provided by different governments.

In other instances, countervailing duties already in place are
maintained in new trade pacts. This dampens the number of countervailing
duty cases because they don't need to be retried under the auspices
of a new free-trade agreement. To meet requirements for admittance
to the WTO, for example, China negotiated a trade pact in September
with Mexico that maintained countervailing duties on 1,300 Chinese
imports.

The consequences of protectionism

Not that anti-dumping laws are without redeeming qualitiesindeed,
they wouldn't be so popular if they didn't bring something to the table
for petitioners. In some cases, import duties offer market opportunities
that were previously absent. For example, Iran once dominated the world
and U.S. pistachio market. But in 1987, California growers capitalized
on tensions between the two countries and convinced the government to
slap a 241 percent duty on Iranian pistachios. California growers quickly
took over Iran's U.S. market share, providing enough leverage to make
U.S. growers the world's second largest producer behind Iran.

More often, however, anti-dumping is used to protect mature domestic
industries from foreign competition. More than half of all active
U.S. anti-dumping duties target steel and other metal industries.
The steel industry is quick to point out that anti-dumping measures
save 200,000 good-paying jobs, including those upstream in the production
process, like iron ore mining in northern Minnesota and Michigan's
Upper Peninsula.

But there are also big consequences to protectionism, particularly
for the broader economy. For example, anti-dumping laws force car
and other manufacturers using steel productswhose employment
is 50 times higher than the steel industry itselfto pay higher
prices for steel. That translates into higher consumer prices and
the potential to eliminate jobs or push production to lower-cost
countries.

Blonigen said the entire protectionist argument is built on a very
slippery slope. "Someone who's against free trade is against
free markets," he said. "In a sense, we're telling foreign
companies, 'Stop selling at low prices,'" because it hurts
domestic industries.

"We get worried about, 'Gee, we're losing jobs here, and they're
gaining jobs there,'" he said. Such a scenario means you "try
and do everything yourself" based on the singular desire to
save people's jobs. But the argument for closing trade with countries
could easily translate into closing trade between states, and then
even neighboring cities. Ultimately, it leads to an economy where
"we guarantee that no one will lose their job," Blonigen
said. "We now have become a completely static economy ... [ignoring]
what made the American economy so great."

Others argue that young industries and companies deserve protection
from their more mature counterparts that are willing and able to
swipe the legs out from under any future competitor. That makes
sense in concept, "but ultimately these companies are going
to become dependent on these subsidies," Blonigen said. "Where
is the incentive for such firms to ever catch up? It becomes a dependent
relationship."

Anti-dumping also distorts markets in other ways. In 1994, university
researchers Robert Staiger and Frank Wolak found that the mere investigation
into duties was enough to dampen trade, and induced firms into initiating
anti-dumping petitions. Building on this work, Prusa found that
anti-dumping duties caused the value of targeted imports to fall
by 30 percent to 50 percent; even where anti-dumping petitions are
rejected, the apparent threat of duties causes imports to fall on
the order of 15 percent to 20 percent.

In 1999, Mexico imposed a duty on swine for slaughter. The previous
year, U.S. exports in this item totaled almost $18 million; the
following year, exports plunged 66 percent to $6 million, according
to the Cato report. In 1997, India imposed anti-dumping duties on
U.S. acrylic fiber; within two years, exports there went from more
than $5 million to zero.

While import duties certainly benefit domestic producers, economic
theory and applied research have pretty much confirmed the fact
that free trade is a net benefit to national economieseven
in light of local, short-term hardshipsbecause ensuing competition
lowers consumer prices and provides incentives for innovation and
productivity.

University of Toronto economics professor Daniel Trefler studied
the impact of the Canada-U.S. Free Trade Agreement from 1989 to
1996 and found that both short-term costs and long-term benefits
were "substantial." Trefler found that short-run costsabsorbed
mostly by low-end manufacturersincluded a 15 percent drop
in employment and a 10 percent decline in both output and the number
of plants making similar goods. But he also found that long-run
labor productivity increased by a "spectacular" 1 percent
a year, and doubled (2.1 percent) for those industries most affected.

Runaway train: brake or crash?

Despite evidence of the broader economic harm, anti-dumping's targeted,
short-term relief simply appears to be too much to resist, and additional
factors also figure to stoke the anti-dumping fire in the future. Developing
countries and other newcomers will continue to play catch-up, according
to Prusa, and the gradual dismantling of the Multifiber Agreement (a massive
system of worldwide quotas for the textiles industry) is expected to trigger
a whole new wave of
anti-dumping cases.

There is also a "recession phenomenon" to anti-dumping,
Prusa said, and the global economic slump is likely to induce industries
to blame foreign competitors for their ills. "Mostly it's just
a decline in demand, [but] they might as well take a shot"
at getting protection from imports, he said. It's this nothing-to-lose
mentality that makes anti-dumping and free trade something of a
prisoner's dilemma. Everyone wins only if there is cooperation among
all players-in this case, unilateral elimination of anti-dumping
Once someone defects from that group, the defector actually gains
the most benefits (it can apply anti-dumping to others' imports,
without retaliation toward its exports). Others will follow a similar
rationale, until finally some late-coming countries are virtually
forced to use it to simply level the trade playing field.

Such conditions closely mirror the existing scenario and hint at
the possibility that many more countries will join the anti-dumping
club. Since 1990, about three dozen countries have used anti-dumping
laws to impose duties on imported goods, according to the WTO. In
contrast, 103 different countries have been anti-dumping targets
in the last decade, including 53 last year alone.

Ironically, some have theorized that a full-armament strategy might
offer a useful, if maybe unintentional, long-term outcome. Once
other countries (and their industries) have the ability to retaliate
in kind, the financial rewards of anti-dumping might no longer be
worth the effort. Blonigen said this could result in a sort of Cold
War equilibrium. "I wouldn't advocate [such a path], but you
could have this result that people weren't expecting."

Research has shown that the "retaliation effect" exists,
and there also is some evidence to suggest that it might have a
cease-fire effect. For example, the United States revoked 130 duty
orders from 1998 to 2000, almost as many (132) as had been revoked
in the previous 17 years.

Others argue that anti-dumping will not stop until the consuming
public better understands the consequences and trade-offs involved.
Right now, anti-dumping can be rationalized as a simple byproduct
of free trade-a political device to allay the fears of nervous domestic
industries and their workers over global competition, what one researcher
called "free-trade fatigue."

Blonigen also acknowledged that free-trade enthusiasts often fail
to appreciate the downside or short-term costs of free trade, particularly
at local and political levels. Free trade, he said, "is not
frictionless. It has distributional consequences." Public policy
would be better off directing assistance and resources "to
switch [the affected parties] into sectors that our economy is competitive
in."

In some ways, free trade might not have made it this far without
political concessions like anti-dumping law, which Emerson called
"a necessary escape clause."

"Free trade is going to generate winners and losers," he said.
"In a political context, anti-dumping is a necessary balance between
winners and potential losers of free-trade policy."